Open Economy Macroeconomics: Basic Concepts

When you decide to buy a car, you may compare the latest models offered by Ford and Toyota. When you take . our next vacation, you may consider spending it on a beach in Florida or in Mexico. When you start saving for your retirement, you may choose between a mutual fund that buys stock in U.S. companies and one that buy stock in foreign companies.In all of these cases ,you are participating not just in the U.S. economy but in economies around the world.

THE INTERNATIONAL FLOWS OF GOODS AND CAPITAL

An open economy interacts with other economies in two ways: It buys and sells goods and services in world product markets, and it buys and sells capital assets such as stocks and bonds in world financial markets. Here we discuss these two activities and the close relationship between them.